Five Shifts that Define the New Era for Wealth Management

November 6, 2012

(This post was also published today on the blog of my consulting firm clientific, follow me there too.)

Five massive foundational shifts are impacting financial service providers of all types, and they are impacting those that serve affluent clients in especially unique ways. Many of the strategies, skills and behaviors that enabled success in the past are now at best ineffective, and completely irrelevant in some cases. Advisors and firms serving affluent clients must adapt to these new realities to be successful in the future.

“If you don’t like change, you’re going to like irrelevance even less.”

— General Eric Shinseki, Chief of Staff, U. S. Army

The first shift is economic. The global financial crisis begun in 2008 is still having a long-term impact on the creation, growth and preservation of wealth. Today’s low growth, low yield environment will likely stick with us for some time, and today’s advisors have to be able to help their clients navigate the realities of the new economy. Firms cannot count on rising portfolio values to increase revenues.

The second shift is regulatory. Partially as a result of the financial meltdown, central banks and regulators all over the world are the in middle of redefining the rules and regulations that today’s financial advisors will likely have to live by for the rest of their careers. Some of the important revenue streams of the past have been curtailed or eliminated—think overdraft fees, payday loans, interchange fees, some mortgage fees, etc. And we are not even close to done, as of October 1, 2012 only one-third of the provisions of Dodd-Frank had been finalized, and another third have not yet even been proposed.

The third shift is demographic. Various research projects that anywhere from $18 Trillion and $56 Trillion of financial wealth will be passing down from the Traditionalist and Baby Boomer generations to their Generation X and Generation Y children and grandchildren over the next several years. Gen X and Gen Y could have a combined wealth that exceeds that of the Baby Boomers as early as 2018, and they do not want “their father’s Oldsmobile”. Even with the more conservative estimates, this is a huge threat for those advisors and firms who don’t adapt to the changes. And it is a massive opportunity for those that do.

The fourth shift is competitive. The global financial crisis caused the weakest firms to disappear while the biggest and strongest got bigger and stronger. (In some cases, only bigger.) It is more important than ever for smaller firms to differentiate themselves in ways that are really relevant. Simply being “the bank” of, say Cozad, for example is no longer enough.

The fifth shift is technological. The tools are already here to radically improve client intimacy and client engagement. The rapid adoption of the iPad and other tablets give wealth managers the opportunity to change the dynamics of the across-the-desk transaction into the shoulder-to-shoulder collaboration that really engages the client. Big data and analytics give firms the power to better understand client behaviors and preferences, if they bother to listen. Social media opens up whole new avenues of client contact.

The challenge will be for firms to adopt the right strategies and then have the discipline to execute. As in every era, we will have winners and we will have losers, and success will go to those who embrace the possibilities of the future while staying relevant to their clients.